South Asia Growth Conference 2013

The 2013 South Asia Growth conference was held in Delhi, and organised by the IGC’s India-Central team, in conjunction with the teams from the Bangladesh, India-Bihar and Pakistan programmes.

The conference provided a platform for the presentation of research undertaken by the IGC South Asia country programmes, and promoted regional dialogue inspired by ideas generated by the IGC. Participants included Raghuram Rajan (Ministry of Finance) and Abhijit Banerjee (Massachusetts Institute of Technology).

The conference disseminated some of the research results of the IGC’s recent work in South Asia to policymakers and other stakeholders. It also enabled policymakers to comment on the relevance and findings of IGC research and allowed researchers to incorporate these comments into their work.

We live-tweeted the event using the hashtag #SAsiaGrowth. You can follow the action on Twitter @The_IGC.

Daily summaries and podcasts are available below.

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Sessions

Session 1: Schooling

In session 1, all three presentations examined the challenge of converting increases in schooling inputs into learning outcomes. The first presenter, Nishith Prakash (University of Connecticut), discussed Bihar’s cycle programme which aims to increase access to high school for girls in Bihar, and showed that it was successful at creating incentives for enrolment, but not for achievement. Prakash also proposed that the conditionality aspects of the programme were not critical to its success, and that, beyond education, it might have broader impacts on female empowerment by improving teenage girls’ mobility and independence.

The second presenter, Karthik Muralidharan (University of California, San Diego), presented on the impacts of Andra Pradesh’s School Choice Project, a school voucher programme, and demonstrated that private schools appear to be a lot more productive than public schools. Despite not leading to better test scores in Telegu and mathematics, attending private schools appear to lead to higher scores in Hindi, English and social sciences. Furthermore, and going against oft-mentioned public concerns, the spillover effects of this project appear to be negligible both for students who remained in public schools as well as for those who were already attending private schools prior to the programme.

The third presenter, Atonu Abbani (University of Dhaka), presented the results from an evaluation of CDIP’s extra tuition program in Bangladesh and concluded that, while the programme did not manage to substantially increase pupils’ test scores, it significantly reduced the dropout rate for participating students.

Finally, as part of the open session, conference participants engaged by asking critical and constructive questions to our presenters. Among others, they inquired into the reasons why parents themselves did not buy bicycles for their daughters, the consideration of “character-building” aspects of schools in measuring their performance and the qualifications of the instructors in the Bangladeshi extra tuition programme.

Session 2: Public sector and programme design

M Musharraf Hossain Bhuiyan (Government of Bangladesh) chaired the second session of the day which looked at design aspects of development projects in the public sector. The first presenter, Maitreesh Ghatak (LSE and IGC India-Bihar), along with Chinmaya Kumar (IGC India-Bihar), discussed different design aspects of the Bihar cycle programme for high school children. They showed that despite high levels of inclusion and limited levels of detectable corruption, the majority of beneficiaries would have preferred to receive a bike (an “in-kind” transfer) rather than cash. Whilst the implementation of the scheme—particularly having to submit a receipt prior to receiving cash—played a role in this, the reasons behind this preference were predominantly on the demand-side; such as income levels, access to credit, and the distance to a bike store.

The second presentation, Rohini Somanathan (Delhi School of Economics and IGC India-Bihar), examined how to incorporate the differing availability of public goods into the measurement of poverty, which is primarily based on private consumption data. The research uses survey data on the availability of schooling, healthcare and subsidised food grains data from Bihar to show that accounting for the provision of public services results in a fall in overall poverty. However, it also leads to an increased spatial dispersion in poverty rates due to poor regional targeting of public spending.

Adnan Khan (LSE and IGC) presented an on-going project looking to improve the efficiency of public procurement in Punjab. Previous studies have shown that inefficiencies in public procurement can cause significant levels of wastage, mostly passive waste, rather than corruption. This project has, from the outset, been designed in close collaboration with the policymakers in Pakistan, allowing for incremental policy influence throughout the lifetime of the project. It uses a sample of cost centres to examine how procurement officers respond to changes in their processes and incentives, and then use these results to design an optimal mechanism for procurement of generic goods. The treatments being used include relaxing financial rules to ease liquidity constraints, and rewarding top performers with an annual honorarium.

The presentations also raised lively discussion from the conference audience. There were questions covering the success of the cycle scheme in limiting corruption through the visibility of the benefits and the collective action, the importance of the differing in value of in-kind and cash transfers affecting people’s preferences, the importance of intra-household dynamics when transfers are received, comparisons with private sector procurement practices in Pakistan, and the ways to ensure successful collaborations between academics and government officials. The Chair closed the session by thanking the presenters and highlighting the importance of in-depth academic work of this type for government officials in developing countries.

Ideas for India

Ashok Kotwal (University of British Columbia) gave the conference an outline of the Ideas for India portal which is celebrating its first birthday tomorrow, 19 July 2013. A key inspiration behind the portal was to make the wealth of research done by the IGC and other researchers available in an accessible format to policymakers and lay-people. The portal, which publishes two to three articles per week, attracts 8,500-9,000 total visits per month, and has nearly 1,300 Twitter followers and 815 Facebook followers. The portal is also open-source, so any respectable publication is encouraged to re-print the information. A variety of contributions are sought: ‘Columns’ from researchers about empirical and other studies, ‘Debates’ between researchers and policymakers, ‘Notes from the field’ from civil society organisations and others working at the grass roots level, and ‘Reflections’ which are opinion pieces. Contributions are encouraged from all researchers working in this field as well as comments on existing pieces.

Policy panel: Trade integration in South Asia

The panel was chaired by Tony Venables (IGC and Oxford University) and issues on the welfare costs of India’s partition, the weak connectivity of the region, and distrust among countries dominated discussions. Robin Burgess (IGC and LSE) presented his co-authored on-going project on “The cost of international disintegration”. The main question is what the effects of partition of India into modern-day India, Pakistan and Bangladesh, are on intra-national and international trade. The authors use a Ricardian general equilibrium model. By observing changes in trade frictions (making trading costs prohibitive), the authors capture the effects of GDP and welfare. Results show that from partition, Pakistan’s welfare falls by around 4% of GDP, whereas India’s welfare falls by 2% of GDP. The main policy message is that the cost of disrupting trade could be very large, and potential gains from reinstating free trade agreements is also large.

Nagesh Kumar (United Nations Economic and Social Commission for Asia and the Pacific) stressed that distrust and weak intra-regional trade are symptoms of the whole South Asia (SA) region, save a couple of exceptions. Studies show that intra-regional trade is only ¼ or 1/3 of its potential. Whereas regional production networks that have been driving industrial restructuring in other regions, have not been taking off in SA due to lack of trust, a more important concern is connectivity. The costs of doing trade within SA are much higher than any other region. Although there are national forums that try to address the issue of connectivity and shared infrastructure, there is a need for a more regional approach, a need to integrate national strategies.

T.N. Srinivasan (Yale) noted that prior to the partition India, Bangladesh and Pakistan were joined in political union, a customs union and a currency union. This deep integration, which Europe is struggling to achieve, was abandoned and South Asia is now the least integrated region in the world. However, Srinivasan expressed doubt about the benefit of India’s current focus on negotiating bilateral trade agreements.

Venables raised concern about the model used in Burgess’ work, in its reliance on the assumption that the substitutability between domestic and foreign goods is the same across all goods. He emphasised that this can’t be true: if a country has no domestic oil reserves, there is no easy substitute for imported oil. He noted that when you allow for differences of trade elasticities across sectors, this increases the model’s estimates of the gains from trade by a factor of about eight. This would suggest that the results presented by Burgess are in fact lower bounds. Venables also expressed some concern about the use of an “off-the-shelf” model that is not fine-tuned to the specific context, which again may contribute to low estimates for the gains from trade.

In the discussion following multiple audience members emphasised that the time of partition was not a “typical period” due to political upheaval, and for example, the large amount of cross-border migration. Burgess noted that for this reason, and the concerns raised by Venables, the authors will also analyse disaggregated sector and regional data that dates back to 1870. On the topic of regional integration schemes, Kumar, echoing Venables, emphasised that negotiations are no longer simply about bargaining for market access. Rather, the purpose of regional integration schemes is much deeper integration, concerned with foreign direct investment and engagement in production networks. Kumar advised that countries who are not pursuing regional integration do so at their own peril.

Session 3: Macroeconomics and finance

Dipak Dasgupta (Ministry of Finance, GoI) opened the first session of the second day of the IGC South Asia Growth Conference 2013 by explaining that economic and financial policy decisions are more of an art than a science, and they are made in a complicated context.

The first presenter, Mushfiq Mobarak (Yale and IGC-Bangladesh), examined informal insurance mechanisms and the quandary where people that the most need formal insurance, do not choose to buy it. His research in India shows that the type of informal insurance offered by a caste network – against aggregate or idiosyncratic risks – determines the demand for formal insurance. He also explained that offers of formal rainfall insurance can increase risk-taking, and potentially growth-enhancing, behaviour by farmers. Finally, he highlighted the importance of offering rainfall insurance to landless farm labourers, whose livelihoods are very weather-dependent, in addition to landed farm owners. Arvinder S Sachdeva (Ministry of Finance, GoI) praised this work as being one of the very few studies examining the micro-foundations of insurance markets, and explicitly using aspects of caste. He questioned the barriers being faced by farmers—such as credit constraints and trust—and the replicability of these insurance contracts in other States, particularly where there are high levels of poverty and a high proportion of Scheduled Castes/Tribes. Other comments referred to the behavioural effects of serial correlation in rainfall, and the level of subsidy in this project preventing break-even outcomes.

The second presenter, Pronab Sen, (IGC India-Central), discussed the incorporation of the Indian financial sector into the planning models of the Government of India, focussing on the relationship between savings and investments. He proposed that the increasing segmentation of the financial sector has some important effects on the macroeconomy. The main takeaway is that if the system is investment constrained (rather than savings constrained) opening up the capital account is more desirable than the Keynesian cure of increasing deficit financed public investment. Arvinder S Sachdeva (Ministry of Finance, GoI) agreed that all these issues remain relevant in policy-making today. He clarified definitions around intra-sectoral mobility, and questioned whether the propositions would change given that a high proportion of savings are in the form of physical—rather than financial—savings, or if the assumption of no asymmetric information was relaxed, or if the current account is partly, or fully, opened.

After a lively discussion between the audience and the authors, on issues like the potential endogeneity in the caste risk-sharing network, the treatment of assets like gold, the price adjustment mechanism in Sen’s model etc., the Chair closed the session by highlighting how improved understanding of insurance and financial markets continues to be relevant and papers such as these are extremely helpful in this.

Session 4: Firms and investment

Chaired by Rakesh Sarwal (Planning Commission), session 4 focused on the role of firms and investment in the growth process. Nirvikar Singh (University of California, Santa Cruz) presented research arguing that foreign investors do not destabilise the local Indian stock market and instead can bring additional capital into the economy during boom times. Singh also suggested that there is no evidence for foreign portfolio investors bringing crises with them into the local Indian stock market. While they can exacerbate extreme movements in stock price returns, they can also help to stabilise prices and bring capital to the market.

The second presenter, Ila Patnaik (National Institute for Public Finance and Policy), presented her research findings about the investment technology of foreign institutional investors (FIIs) and domestic institutional investors (DIIs) in India. As part of her research, she compared stock selection patterns of FIIs and DIIs and found surprisingly large differences. Among others, FIIs appear to select firms do not have a large promoter ownership, are young and have small physical assets; the pattern for DIIs is the opposite. The most interesting, and perhaps most surprising result is that FIIs seem to be much less successful than DIIs at selecting stock yielding a high market return. Overall, high FII investment is a relatively poor predictor of growth, which implies that tweaks and improvements to the organisation of the investment regime in India might be warranted.

Anupam Khanna (Chief Economist and Director-General Policy Outreach at NASSCOM) presented his policy perspective on both research papers, raising questions about the concentration and benefits of FDI. He also stressed the importance of taking a look at the FDI impact of average firms, as well as the growth impact of investors that do not fall under the FII and DII categories.

Session 5: Health

The afternoon session on health was chaired by Rakesh Sarwal (Planning Commission) with the first presentation from Chander Kumar Singh (TERI) and Prabhat Barnwal (Columbia University) examining the business of reducing the arsenic poisoning of millions across rural India. The research suggests that a semi-commercial approach to testing can reduce arsenic poisoning. After delivering a public-health message describing the risks of high-arsenic groundwater, field staff offered testing at a fixed price to each household. They found that the proportion of households buying a test gradually declined as the price increased from Rs10 to Rs50. The researchers found that if the test was priced at Rs20, more than two-thirds of villages were willing to pay for the test. This would be sufficient to cover the costs (salary and transportation) of a tester with secondary education, assuming they conducted 10-20 tests per day. The policy perspective was provided by Sheela Prasad (Ministry of Health and Family Welfare) who said that this study was very timely, especially considering 34% of the wells in the study had arsenic levels above 50 micrograms per litre (10 is the recommended maximum). She argued that awareness needed to be generated about the negative health implications of arsenic in well water, and that a graded fee structure may be necessary so that households paid more according to their wealth. Finally, she recommended that supply-side issues also needed to be addressed so that disadvantaged groups have access to clean water.

Nidhiya Menon (Brandeis University) discussed the seasonal effects of water quality on infant and child health, focusing on the impact of fertiliser use as part of the green revolution. A dramatic explosion in the use of fertiliser in India from the 1960s led to children being exposed, both in utero and after birth to fertilisers, as women themselves are continually exposed due to their work at the forefront of farming activities. Her research has found that the presence of agrichemicals in water in the month of conception significantly increases infant and neo-natal mortality. In addition, exposure to agrichemicals in the month of conception has significantly negative impacts on height-for-age and weight-for-age at age five. It is noteworthy that month of conception exposure to agrichemicals in water has effects on both short and long-term outcomes. Her findings highlight the tension between greater use of fertiliser to improve yields and the negative health impacts of such use. Sheela Prasad (Ministry of Health and Family Welfare) noted the policy relevance of this research, particularly given that India’s 12th Five Year Plan contains the goal to reduce the current rate of infant mortality (44 children per 1000 live births) to only 25 deaths per 1000 live births.

Session 6: Governance

Dilip Mookherjee (IGC India-Central) chaired the sixth and last session, which explored new perspectives and policies relative to governance issues. Mushfiq Mobarak (Yale and IGC-Bangladesh) used a recent study on a sanitation programme in Bangladesh to address an extremely debated question: Does development aid undermine political accountability? Empirical evidence shows that voters respond to exogenous shocks, such as unexpected climatic episodes, by rewarding or punishing politicians that happen to be in charge. From this perspective, foreign aid represents an exogenous positive shock to the livelihood of the targeted population, from which politicians might earn underserved consensus. An international debate hence flourished on whether aid might ultimately lead to decrease in policymakers’ effort and accountability. Mobarak questioned this theory of “irrational voting behaviour” by assuming and providing evidences of political endogenous responses to shocks. In the context of the Bengali intervention, politicians reacted to the programme by increasing their presence in targeted villages. This renewed effort reduced the distance between governing institutions and constituencies, leading to a more active dialogue on village specific needs. In addition, when direct intervention is replaced with information programmes, citizens’ political satisfaction decreases, with significant improvements in terms of accountability.

The second speaker, Adnan Khan (LSE and IGC), extended the debate on governance by presenting preliminary results on a four year research project in Punjab, Pakistan. The programme aimed at providing different types of performance-based incentives to local tax offices, gauging the impact on tax assessment and collection. The well-designed scheme attracted several questions from the audience as the debate could be extended to a wide range of civil servants. The success of the project encouraged the Pakistani Government to extend the scheme over the entire Punjab region and for an additional year, where new sets of incentives will be tested. In particular, the authors designed a more cost-effective incentive based on relocation and posting preferences. Additionally, the programme will include incentives towards tax payers’ satisfaction in order to improve willingness to comply, interaction with institutions and accountability.

The discussions that followed the two presentations were enriched by comments from Amitabh Behar (National Foundation for India). Bridging the gap between the two papers, Behar explored the distinctions between political and administrative accountability, stressing the need for more subsidiarity in the deployment of aid flows and further decentralisation. The debate then extended to the topic of civil servants’ intrinsic motivation and communities’ ethical-fabric, with the audience providing comments on self-selection into the public administration, cost effectiveness of incentive schemes and issues related to the scaling up of programmes.